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More people bought previously owned homes in November, the third increase in four months after the worst summer season in more than a decade.

Still, economists say it could take years for home sales to return to healthy levels.

Buyers bought homes at a seasonally adjusted annual rate of 4.68 million, the National Association of Realtors said Wednesday. Even with the rise, this year is shaping up to be the worst for home sales since 1997.

Economists say it could take at least two years or longer to return to a more normal level for sales of around 6 million units a year.

"The housing market is still flat on its back, but there are signs that it is starting to pick itself up," said Mark Zandi, chief economist at Moody's Analytics. "Even with the improvements we expect, next year will still be a very weak market."

The housing market is still struggling to recover from a boom-bust cycle which helped trigger a severe economic recession. Home prices have tumbled in most markets and many potential buyers worry that prices could fall further.

The median price of a home sold in November was $170,600.

A major problem is the glut of unsold homes on the market. Those numbers fell to 3.71 million units in November. It would take 9.5 months to clear them off the market at the November sales pace. Most analysts say a six to seven-month supply represents a healthy supply of homes.

Demographic terms bode well for the long-term health of housing markets, but the near term is fraught with uncertainty, according to a “State of the Nation’s Housing” report released today by the Joint Center for Housing Studies of Harvard University.

With the economy finally adding jobs this spring and house prices down dramatically, “two essential conditions for a sustained recovery in single-family starts and sales had fallen into place,” the report said.

But it remains to be seen whether home sales will weather the expiration of the federal homebuyer tax credit, the report said. Initial signs of a recovery are also threatened by a “severe overhang” of vacant units, high unemployment, and record numbers of homes that are worth less than what’s owed on their mortgage.

The report concludes that deep cuts in homebuilding have already brought housing supply and demand back into better balance. It’s soft demand for housing, rather than a large oversupply, that’s holding back residential construction at the moment.

The recession wiped out 8.4 million jobs, which has forced some families to double up and delayed plans of many young adults to move out of their parents’ homes. Demand for housing is also down because the downturn has slowed the pace of immigration, and an estimated 1 million illegal immigrants have left the country, the report said.

Soaring unemployment and reduced immigration have slowed the pace of household formation from between 1.2 million and 1.4 million a year during the first half of the decade to less than 1 million a year, the report said.

Home prices in the United States have been falling for nearly three years, and the decline may well continue for some time.

Even the federal government has projected price decreases through 2010. As a baseline, the stress tests recently performed on big banks included a total fall in housing prices of 41 percent from 2006 through 2010. Their “more adverse” forecast projected a drop of 48 percent — suggesting that important housing ratios, like price to rent, and price to construction cost — would fall to their lowest levels in 20 years.

Such long, steady housing price declines seem to defy both common sense and the traditional laws of economics, which assume that people act rationally and that markets are efficient. Why would a sensible person watch the value of his home fall for years, only to sell for a big loss? Why not sell early in the cycle? If people acted as the efficient-market theory says they should, prices would come down right away, not gradually over years, and these cycles would be much shorter.

But something is definitely different about real estate. Long declines do happen with some regularity. And despite the uptick last week in pending home sales and recent improvement in consumer confidence, we still appear to be in a continuing price decline.

There are many historical examples. After the bursting of the Japanese housing bubble in 1991, land prices in Japan’s major cities fell every single year for 15 years. ...

Home sales in the Twin Cities rose 21 percent in March, thanks in part to lower interest rates and new federal tax credits, area Realtors said this morning.
There were 4,407 pending sales in March, up 21.3 percent from a year ago, according to data released by the Minneapolis Area Association of Realtors.
That's 10 consecutive months of year-over-year increases in pending sales and the largest such increase since December -- another month in which mortgage rates dropped precipitously.
In a prepared statement, the association said the increase was more than just a seasonal shift.

"Low rates and ridiculous affordability are driving this deal," said Steve Havig, president of the association. "The $8,000 federal tax credit for first-time home buyers adds fuel to the fire."
But the report also showed a continued slide in home prices. The median sale price for all properties was $154,125 in March, down 22.9 percent from a year ago. The association attributed that to increased prevalence of foreclosures and short sales. The median March sale price of traditional homes was $215,000, down 2.3 percent from a year ago.

Star Tribune

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